IDFC Infrastructure Bond - Should we be buying it ?

IDFC INFRASTRUCTURE BONDS


                         Have a look at any paper, one will be bombarded with ads for IDFC infra bonds.


The brokers are  hiring temporary helps to cold call customers and getting them to invest.


And I was no exception. I also got enticed. So I decided to do a study on what is the deal about 


IDFC infra bonds. Here are my findings.




What is the noise all about?
    
       It all started with the budget in which FM announced extra tax rebate for infra bonds which is in addition to the existing 1L limit. And that is the only advantage of this whole thing. 


I will explain why. 


IDFC infrastructure bonds come in 4 series. (More on that later).


The interest rate on these bonds are either 7.5 or 8%. Now if I subtract tax from it,
returns become paltry 5.5 to 6%. Not so good now right?


However, if you add the tax benefit returns become 9 - 9.5%. This is much better isn't it.


So we have established, that this infra bond thing is useful only for tax saving. 


Ok now to the technical stuff.


Minimum investment a person has to make is 10,000 rs. 
One can invest more than 20,000 , but he/she will receive tax break only for 20,000.


How can one invest in IDFC infrastructure bond


One needs to have a demat account for investing in this bond, as these bonds will be listed 


on  both NSE and BSE.


Lock-in Period - When will I get money back


Lock-in period for these bonds are 5 years and maturity period is 10 years. 


What does this mean? You cannot get this money back till the end of 5th year.


After 5 years, you can hold it till 10 years when IDFC will give your original money + interest earned. 


Another option is, since these bonds are listed on the stock exchanges, one can sell it off in the 


market just like any other stock after 5 years. 


What is this 4 series ?


IDFC has introduced bonds in 4 flavours. Series 1, Series 2, Series 3, Series 4.


Essentially they differ in type of interest and buyback.


Series 2 and 4 pay cumulative interest. 


Series 3 and 4 offer buyback. Buy back means, you can sell the bonds to IDFC at the end of 5 


years. If one doesn't take this option, he will have to sell it in NSE or BSE as explained above.




What is the conclusion


 1) Don't bother about this unless are in 30% income tax bracket.


2) Invest only maximum of 20,000.


3) I will only go for series 4 (cumulative + buy back + interest rate of 7.5%) since my objective is 


only to get tax break.








Disclaimer : This is not a recommendation/ solicitation of any order to buy or sell, but Jerry's view on indian stock market. I assume no responsibility for any opinion or statement made in this blog. Readers are urged to exercise their own judgment in trading. Readers shall solely be responsible for profit/loss